Top six misconceptions about eGift cards

By Derek Warburton, dwarburton@buyatab.com

Retailing is a highly competitive business, so being among the first to embrace a new marketing strategy or technology can deliver substantial rewards to the earliest adopters. In the case of eGift cards, they’ve been in the marketplace for about four years. Although some of the biggest chains in the world have already “early adopted” these programs to great effect, many retailing chains have put off extending their plastic gift card programs to the electronic arena. This is likely due to the typical misconceptions that pervade many newly emerging business trends. The bad news is that this delay could end up costing these companies a lot down the road. The good news is that you can change the race right now.

First, let’s look at the top six misconceptions around eGift Card programs that chain store executives need to know.

1. “eGift Cards will only cannibalize our existing gift card sales”
At first, adding eGift Cards to your existing gift card program may seem like an added expense that will cannibalize sales of existing plastic cards. In fact, real-life implementation shows that these promotions deliver new, incremental sales, not only in eGift Cards but also in plastic cards.

One factor is that the entire program often grows through an increased general awareness fostered by the eGift Card promotion. In addition, evidence from current sales of industry leaders indicates that it will take only a year or two before eGift sales can equal or exceed online plastic card sales. While plastic gift card sales are unlikely to decline outright, any reduction in the use of plastic will deliver cost savings while still seeing overall sales increase.

2. “Fraud in eGift Cards is too pervasive”
Definitely, eGift Card programs are a target for fraudsters. However, advanced analytical algorithms, good old-fashioned human awareness, and other classified fraud-detection tools and techniques that industry vendors utilize to reduce fraud keep it to a bare minimum. Still worried? Your vendor should be confident enough to cover 100 percent of any losses incurred from eGift Card fraud. That’s right: experienced eGift Card vendors will cover all fraud losses in their programs. In terms of prevention, there’s always a fine line between maximizing sales and minimizing fraud, but today the technology and vendor commitment is there to keep this problem to a minimum…and your risk of losses at zero.

3. “Our IT department can build this internally”
Sounds good because at first glance outsourcing may seem too expensive: “IT can handle this. It’s just an extension of our gift card program…right?” Fraud is the most immediate Achilles’ heel exposing you to high financial risk when you go in-house. The bottom line: this program is too complex to build and maintain internally, and the openings for hackers will be too attractive. You could get burned quickly, and badly.

In addition, it can be a costly and time-consuming misstep to have IT attempt to re-create the complex tools, documentation, procedures, modules and infrastructure that have been optimized by expert eGift Card vendors over years. And by the time your IT department does that, industry advances will have made their work obsolete. What will IT say when you request a new feature? Probably something like this: “It could take a while but we’ll get to it as soon as we can.” With an outside vendor, you’re already their top priority.  

4.“The technology is unproven”
In fact, the technology is already proven and mature. Many of the world’s largest retailers, restaurants and other chains are early adopters and are adding additional exciting new features and modules as vendors develop them. Second-wave adopters have the luxury of knowing their vendors have top-notch hardware and software already in place, and that any bugs have long since been worked out. This technology is robust and proven.

5. “Customer adoption isn’t there yet”
Today, eGift Card programs are in their infancy, comprising just one percent of the estimated $100 billion gift card market in 2011 (Source: TowerGroup, Corporate Executive Board). However, rapid growth of this marketplace is expected, i.e., a 1,000 percent gain to $11 billion in 2014 out of a $130-billion eventual market. The problem with waiting for extensive customer adoption is that you can miss a lot of the market’s growth while you wait to get up and running — a delay that will be extended even further if you attempt to re-invent the wheel in-house. It’s not all about industry totals and trends — it’s about taking the initiative to market your program before your competitors wake up …. “first-past-the-post” efforts that will deliver dividends.

6. “New hardware will be required in all stores”
The mistaken belief is that quick-service restaurants and other retail settings implementing an eGift Card program will require new hardware to read barcodes. In fact, POS terminals at most QSRs already allow for a swipe of the card, and eGift Cards come with a barcode and number that can be typed into the POS. If the QSR doesn’t have scanning equipment, employees simply enter the number. This takes fewer than ten seconds, similar to dealing with credit cards.

Nimbleness — the ability to react quickly to new opportunities — is one of the top means by which smaller companies sometimes surprise by overtaking their larger competitors. Conversely, some companies err on the side of moving too slowly to adopt new innovations, frequently allowing erroneous misconceptions to back-burner serious internal discussions around important new trends.

So although some of the biggest merchants in the world have already incorporated eGift Cards into their overall marketing strategies, there remain a host of other companies — and maybe yours is one of them — still sitting on the sidelines. This delay puts you at risk of letting your large competitors get even larger by commandeering your share of a hot new market. Consider changing the results of the race early by taking advantage of the proven expertise available at your fingertips. Stay level, catch up, or even pull ahead; in the end, it’s all a win.

Derek Warburton is VP sales and marketing with Buyatab Online, a leading provider of eGift Card technology solutions to the retail, hospitality and entertainment sectors. He can be reached at dwarburton@buyatab.com and can be followed on Twitter @egiftcardguru.


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